Consumer Payment Choice: A Central Bank Perspective. Scott Schuh Federal Reserve Bank of Boston October 1, 2013

Transcription

1 Consumer Payment Choice: A Central Bank Perspective Scott Schuh Federal Reserve Bank of Boston October 1, 2013

2 Originally presented to PULSE Financial Institution Oversight Committee, Washington, DC The views expressed in this presentation do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System. Results from the 2011 Survey of Consumer Payment Choice (SCPC) and 2012 Diary of Consumer Payment Choice (DCPC) are preliminary and subject to change. 2

3 Agenda Payments Transformation Recent Consumer Payment Choices Consumer Assessments: Security Example Understanding Consumer Payment Behavior Debit vs. Prepaid Looking Ahead Policies and Predictions 3

4 Noncash payment trends Number of U.S. payments by all sectors (household, business, government) Checks Billions per year Credit Debit Electronic (ACH) EBT cards Source: Federal Reserve Payment Study (FRPS) 4 4

5 Consumers have more payment options Number of payment instruments Pre-existing 1. Cash 2. Checks 3. Money orders 4. Travelers' checks Credit cards 1977 Number held, out of 9 instruments 6. Debit cards Number used, out of 9 instruments Number held, out of 4 instruments (Check, CC, DC, BANP 8. Prepaid cards Mobile account payments? OBBP Source: Survey of Consumer Payment Choice, results unofficial and preliminary; CPRC research 5 5

6 New payments policies were enacted CARD Act of 2009 (Fed, Congress) Opt-in overdraft protection (Fed) Dodd-Frank Act 2010/Durbin (Fed) V/MC Settlement: discounts, fee disclosure (DoJ) New fees on debit cards, accounts (Banks) Proposed rules for prepaid cards (CFPB) Strategic plan for payments (Fed) Proposed rules for student cards/accounts (CFPB) V/MC/bank Settlement: CC fee rebate, surcharging (US District Court, NY) Regulation II rejected (US District Court, DC) 6

7 Agenda Payments Transformation Recent Consumer Payment Choices Consumer Assessments: Security Example Understanding Consumer Payment Behavior Debit vs. Prepaid Looking Ahead Policies and Predictions 7

8 Consumer payments data program Year Survey (Boston Fed) , ,500* , ,169 Diary (3 Fed Banks) , , ,176 2,547 Transactions Data (TBD) ,100 e ---? Notes: * Sponsored by the AARP; e is estimate. Red indicates pilot studies. All samples are U.S. consumers except in 2003 (Boston Fed employees) and 2004 (all Fed employees). 8

9 Comparison of Survey and Diary Feature Financial responsibility Assess payment instruments (PI) Survey (monthly activity) X X Diary (3-day activity) Adoption of PI X X (implied) Incidence of use of PI X (month, year) X (3-day) Cash activity X X Frequency of use of PI X X Dollar value of payment activity X Note: Diary data can be linked to Survey panel data from (and beyond) for each individual respondent. 9

10 Consumer payments and consumption Dollars Per Month 3,500 3,450 3,400 3,350 3,300 3,250 Real consumption per capita (left scale) NOTE: Estimated number of payments for is currently in production. Number of payments per capita (right scale) Number of Payments Per Month 3,200 Q4/2005 Q4/2006 Q4/2007 Q4/2008 Q4/2009 Q4/2010 Q4/2011 Q4/ Notes: Consumption is the inflation-adjusted value of goods and services bought. Payments is the number of times consumers made a payment for consumption and non-consumption transactions. Sources: Haver Analytics; Survey of Consumer Payment Choice. 10

11 Transaction values by instrument, $ Dollars per transaction $21 $171 $44 $56 $22 $182 $ Cash Check* Debit Credit Prepiad OBBP BANP Other 0 Notes: *Checks and Money Orders. Other does not include unreported and text messages. Source: 2012 Diary of Consumer Payment Choice, unofficial and preliminary. 11

12 Consumer payments by instrument, % 90% Electron 100% 90% Percent share of value 80% 70% 60% 50% 40% 30% 20% Cards Paper 80% 70% 60% 50% 40% 30% 20% Percent Share of number Other BANP OBBP Prepaid Credit Debit MO and TC Check Cash 10% 10% 0% Number per consumer Value per consumer 0% Source: 2012 Diary of Consumer Payment Choice, unofficial and preliminary. 12

13 Consumer adoption of payment instruments Checking Account Cash Percent of Consumers Solid Line = SCPC Dashed Line = SCF Credit Debit OBBP BANP Prepaid Blank Checks Money order Travelers check Source: Survey of Consumer Payment Choice, results unofficial and preliminary; 2013 Prepaid Survey, results unofficial and preliminary; Survey of Consumer Finance 13

14 Consumer use of payment instruments Percentage share of monthly payments 35 Debit Cash Credit 15 Check 10 BANP 5 OBBP Money order Travelers check Prepaid Source: Survey of Consumer Payment Choice, results unofficial and preliminary 14

15 Number of instruments held by consumers 6 5 Solid Line = SCPC Dashed Line = SCF Number held out of 9 (SCPC) 6 5 Number Of Instruments Number held out of 4 means of payment (Check, CC, DC, and Automatic ACH bills) Source: Survey of Consumer Payment Choice, results unofficial and preliminary; Survey of Consumer Finance 15

16 Consumer portfolios of instruments Percentage of consumers holding various numbers of payment The total number of unique wallet portfolios Number of Payment Instruments Adopted Source: 2010 Survey of Consumer Payment Choice 16

17 Number of payment cards held by adopters Percentage of adopters Debit Prepaid Credit Number of cards 0 Source: 2012 Survey of Consumer Payment Choice, results unofficial and preliminary 17

18 U.S. domestic currency in circulation Average Consumer Cash Holdings (right scale) $132 $147 $ $158 $ Dollars Total U.S. Currency per Capita (left scale) Dollars Note: Capita is defined as 18+ non-institutionalized civilians. Cash holdings exclude large values. Source: (Left) Federal Reserve Statistical Release; (Right) Survey of Consumer Payment Choice, results unofficial and preliminary 18 18

19 Cash withdrawals by location Source: 2012 Diary of Consumer Payment Choice, unofficial and preliminary 19

20 Mobile banking and payments Mobile banking adoption (new definition) Percentage of consumers Mobile banking adoption (old definition) Mobile banking use (new definition) Mobile payments any type* Mobile banking use Mobile payments by 5 (old definition) contactless Mobile payments by text Source: Survey of Consumer Payment Choice, results unofficial and preliminary; *Consumers and Mobile Financial Services, Federal Reserve Board. 20

21 Agenda Payments Transformation Recent Consumer Payment Choices Consumer Assessments: Security Example Understanding Consumer Payment Behavior Debit vs. Prepaid Looking Ahead Policies and Predictions 21

22 Security seems most important to consumers Security Payment records Cost Convenience Acquisition and setup Acceptance for payment Percent of Consumers Most important 2nd most Source: 2011 Survey of Consumer Payment Choice, results unofficial and preliminary 22

23 Ratings of payment instrument security Cash Check Debit card Credit card Prepaid card Bank account number payment Online banking bill payment 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent of Consumers Very risky Risky Neither risky nor secure Secure Very secure Source: 2011 Survey of Consumer Payment Choice, results unofficial and preliminary 23

24 Security ratings are rising over time Source: Survey of Consumer Payment Choice, results unofficial and preliminary 24

25 In-person payments are rated most secure In-Person By Mail By Phone By Mobile Online 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent of Consumers Very Risky Risky Neither Secure Very Secure Source: 2011 Survey of Consumer Payment Choice, results unofficial and preliminary 25

26 Consumers prefer PIN debit payments Pin 55 Signature 22 yet usage is almost even Either 23 Pin debit 12.3% Signature debit 12.1% All other payment instruments, 75.7% Sources: 2012 Survey of Consumer Payment Choice; 2012 Diary of Consumer Payment Choice, unofficial and preliminary 26

27 Agenda Payments Transformation Recent Consumer Payment Choices Consumer Assessments: Security Example Understanding Consumer Payment Behavior Debit vs. Prepaid Looking Ahead Policies and Predictions 27

28 Grocery payments, then and now Probability of using payment instruments correlates with $ value (in $2001) Notes: Graphs include same four payments instruments. Credit card includes signature debit. Source (left): Klee, E. (2008). How people pay: Evidence from grocery store data. Journal of Monetary Economics, 55, Source (right): 2012 Diary of Consumer Payment Choice, results unofficial and preliminary 28

29 Nonbill payments, 2012 Source: 2012 Diary of Consumer Payment Choice, unofficial and preliminary 29

30 Bill payments, 2012 (Not automatic) Source: 2012 Diary of Consumer Payment Choice, unofficial and preliminary 30

31 Consumers benefit least from prepaid cards Table 6: Relative Utility by Context and Payment Instrument (1.00 = most preferred by consumers) Automatic bill pay Online bill pay In person bill Online pay pay Essential retail Nonessential retail Other nonretail cash check debit card credit card online banking bill pay 0.87 electronic bank account deduction store value card direct deduction from income 0.85 Source: Sergei Koulayev, Marc Rysman, Scott Schuh, and Joanna Stavins (2012), Explaining Adoption and Use of Payment Instruments by U.S. Consumers, Federal Reserve Bank of Boston Working Paper No

32 Agenda Payments Transformation Recent Consumer Payment Choices Consumer Assessments: Security Example Understanding Consumer Payment Behavior Debit vs. Prepaid Looking Ahead Policies and Predictions 32

33 Comparison of money and instruments Feature Assets Cards Cash Checking Account Debit Prepaid Medium of exchange (GP > other) Unit of account X X Store of value X X Fees Non-network ATMs Some accounts Few Many 33

34 Consumers prefer debit to prepaid Economic Theory High Low Opportunity Cost Cash, Prepaid, TC, MO [Negative] < OBBP, BANP [Zero] < DC, Check < CC, Mobile Text/SMS Transaction Cost Prepaid < Cash < All Other Instruments Consumer Assessments, Survey Data Worse Better Acceptance BANP < Check, Prepaid, OBBP < DC, CC, Cash Cost Cash < DC, Check, BANP, OBBP, Prepaid < CC Records Cash, Prepaid < BANP < DC, Check, CC, OBBP Security BANP, Cash, Check, Prepaid < OBBP, DC, CC Convenience BANP < Cash, Check, OBBP, Prepaid < DC, CC Get/set up Prepaid, OBBP, BANP < DC, CC, Check < Cash 34

35 Consumer use of prepaid cards Percentage of consumers Percentage of adopters using prepaid cards in a year Percentage of consumers using prepaid cards in a year. Discard rate per year Percentage of consumers reloading prepaid cards in a year. Notes: Prepaid use is defined as the share of consumers or adopters using a prepaid card in a given year. The above results are based on 4 card categories. Source: 2010 and 2011 Survey of Consumer Payment Choice, 2011 results unofficial and preliminary 35

36 Consumer adoption of prepaid cards Percentage of consumers Any type of prepaid: 62.2% Source: 2013 CPRC Prepaid Survey, unofficial and preliminary 36

37 Agenda Payments Transformation Recent Consumer Payment Choices Consumer Assessments: Security Example Understanding Consumer Payment Behavior Debit vs. Prepaid Looking Ahead Policies and Predictions 37

38 Debit card fee cap estimated to increase fees paid by merchants with small-dollar transactions Fast food, food service, food trucks, snack bars $10.16 Post-Durbin change in interchange fee per transaction by merchant type Restaurants, bars $ Department and discount stores $ Gas station $42.58 Grocery, pharmacy, liquor stores, convenience stores $ Note: Selection based on most number of debit card payments. Dollar values are average transaction for merchant. Source: Oz Shy (2013), Measuring some Effects of the 2011 Debit Card Interchange Fee Reform, updated version of Who Gains and Who Loses from the 2011 Debit Card Interchange Fee Reform? Federal Reserve Bank of Boston Public Policy Discussion Paper No

39 Is Durbin/RegII affecting consumers? POS: hard to see direct effects because consumers: Don t pay the merchant/interchange fee directly Are unlikely to perceive reductions in retail price (if any) May not have a choice between PIN and signature and may not care that much despite having preferences Don t know or influence merchant s routing decision Are unlikely to be aware of the issues And simply may not care especially if they don t see changes BANKS: some changes to accounts, cards, fees, etc. 39

40 Faced with fee for debit, consumers want to switch mostly to cash and check Source: Sergei Koulayev, Marc Rysman, Scott Schuh, and Joanna Stavins (2012), Explaining Adoption and Use of Payment Instruments by U.S. Consumers, Federal Reserve Bank of Boston Working Paper No

41 Faced with surcharge on credit cards, consumers want to switch to cash and check and debit Source: Sergei Koulayev, Marc Rysman, Scott Schuh, and Joanna Stavins (2012), Explaining Adoption and Use of Payment Instruments by U.S. Consumers, Federal Reserve Bank of Boston Working Paper No

42 Will U.S. merchants surcharge credit? Australian experience suggests yes (over time) Source: Reserve Bank of Australia,

43 CFPB proposed rules for prepaid General purpose reloadable prepaid cards (GPRPC) Should GPRPC be subject to Regulation E (electronic funds transfers)? Require standard disclosures? Protect consumers from unauthorized transactions? Regulate fees and information in GPRPC? Inform/teach consumers about GPRPC? Require deposit insurance on card balances? Regulate overdraft situations on card balances? Force provision of savings for card holders? 43

44 THANK YOU The views expressed in this presentation do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System. Results from the 2011 Survey of Consumer Payment Choice (SCPC) and 2012 Diary of Consumer Payment Choice (DCPC) are preliminary and subject to change. 44